Leading European countries pledge to aid banks

But U.S.-style bailout gains little favor

Emma Vandore and Aoife White, Associated Press

Published 4:00 am, Sunday, October 5, 2008

Photo: Virginia Mayo, AP

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French President Nicolas Sarkozy, center left, shares a word with British Prime Minister Gordon Brown during a media conference at an emergency financial summit at the Elysee Palace in Paris, Saturday Oct. 4, 2008. The global financial crisis is forcing the leaders of France, Britain, Germany and Italy to come together for an emergency summit in Paris. But differences on how to respond to the economic turmoil could drive them apart. Seated left is German Chancellor Angela Merkel, and right is European Commission President Jose Manuel Barroso. (AP Photo/Virginia Mayo) less

French President Nicolas Sarkozy, center left, shares a word with British Prime Minister Gordon Brown during a media conference at an emergency financial summit at the Elysee Palace in Paris, Saturday Oct. 4, ... more

Photo: Virginia Mayo, AP

Leading European countries pledge to aid banks

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Europe's four major powers vowed Saturday to do all they could to prevent Wall Street's turmoil from destabilizing their banking systems - even as a $48 billion plan to save a German lender fell apart.

But aside from vague statements of intent and calls for tighter regulation, the leaders of Germany, France, Britain and Italy shied away from the sort of massive bailout passed by the U.S. Congress last week.

Europe's four largest economies pledged to coordinate national responses to help banks in distress, but their failure to agree on a European Union-wide plan reflects divisions in Europe on how to deal with the crisis washing up on the continent's shores from the United States.

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France had argued for a multibillion-dollar EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

The EU's failure during the past week to pull together on dealing with the crisis has caused worry. Both Ireland and Greece angered their EU neighbors by acting independently and guaranteeing to protect all savings.

The Saturday afternoon summit was arranged hastily with the aim of reassuring jittery markets and investors. A day earlier, U.S. legislators approved a $700 billion government plan to buy up bad debt from banks and help unfreeze lending.

Instead, they took a swipe at European subsidy rules designed to ensure fair competition by preventing governments propping up failing companies.

Given the "exceptional circumstances," they said, EU regulators should be flexible on laws that restrict how much governments can give companies in trouble.

European states have pumped billions of dollars into banks to keep them afloat over the last week, trying to assure savers that their money was safe and avert a panic that has frozen lending across the world.

The latest institution to run into trouble was Germany's No. 2 commercial property lender, Hypo Real Estate Holding AG, which said its $48 billion rescue plan had unraveled Saturday when private banks pulled out. They said they did not want to provide the bank with credit.

The European leaders also demanded more room to maneuver on EU economy rules as European growth slows sharply. A statement distributed after the meeting said guidelines for EU nations to keep budget deficits under 3 percent of GDP "should reflect the current exceptional circumstances."

Easier for the leaders to target were the golden parachutes that allow chief executives of failing firms to walk away with millions in retirement bonuses.

Sarkozy, the summit host, said all four nations "pledged that in cases of public support to banks in difficulty, the managers will be punished, and shareholders as well will bear some of the consequences."

They pledged to help small companies seeking credit by speeding up the release of $41.5 billion in European Investment Bank loans.

Sarkozy suggested that, with the United States focused on its November presidential election, it was important that Europe act to reshape a more responsible global economy.

"We want to put down the foundations of a capitalism of the entrepreneur and not of the speculator. We want transparency, we want moralization. We want the creation of value. We want people to have confidence," he said.